Literature list

Seminar 5

The market: types, structure, models.

Seminar plan:

1. Essence, functions, types, structure of the market.

2. The market as relationship system. Advantages and disadvantages of the market. The models of market economy.

3. Kasakhstan in the way of rapid modernization

4. Demand and supply. Case 5.1”shall we put up our price?” Multiple choice test on the subtopic “Demand and supply”

Case 5.1

Shall we put up our price?

Competition, price and revenue

When you buy a can of drink on a train, or an ice-cream in the cinema, or a bottle of wine in a restaurant, you may well be horrified by its price. How can they get away with it?

The answer is that these firms are not price takers. They can choose what price to charge. We will be examining the behaviour of such firms in Chapters 4 and 5, but here it is useful to see how price elasticity of demand can help to explain their behaviour.

Take the case of the can of drink on the train. If you are thirsty, and if you haven’t brought a drink with you, then you will have to get one from the train’s bar, or go without. There is no substitute. What we are saying here is that the demand for drink on the train is inelastic at the normal shop price. This means that the train operator can put up the price of its drinks, and food too, and earn more revenue.

Generally, the less the competition a firm faces, the lower will be the elasticity of demand for its products, since there will be fewer substitutes (competitors) to which consumers can turn. The lower the price elasticity of demand, the higher is likely to be the price that the firm charges.

When there is plenty of competition, it is quite a different story. Petrol stations in the same area may compete fiercely in terms of price. One station may hope that by reducing its price by 1p or even 0.1p per litre below that of its competitors, it can attract customers away from them. With a highly elastic demand, a small reduction in price may lead to a substantial increase in their revenue. The problem is, of course, that when they all reduce prices, no firm wins. No one attracts customers away from the others! In this case it is the customer who wins.

Question 1. Why might a restaurant charge very high prices for wine and bottled water and yet quite reasonable prices for food? 2.Why are clothes with designer labels so much more expensive that similar ‘own brand’ clothes from a chain store, even though they may cost a similar amount to produce?

Test questions on the subtopic 4 “Demand and supply”

Question 1

Which best describes a demand curve?

a) The quantity consumers would like to buy in an ideal world

b) The quantity consumers are willing to sell

c) The quantity consumers are willing and able to buy at each and every income all other things unchanged

d) The quantity consumers are willing and able to buy at each and every price all other things unchanged

Question 2

A fall in price:

a) Will cause an inward shift of demand

b) Will cause an outward shift of supply

c) Leads to a movement along a demand curve

d) Leads to a higher level of production

Question 3

Demand for a normal product may shift outwards if:

a) Price decreases

b) The price of a substitute rises

c) The price of a complement rises

d) Income falls

Question 4

According to the law of diminishing marginal utility:

a) Utility is at a maximum with the first unit

b) Increasing units of consumption increase the marginal utility

c) Marginal product will fall as more units are consumed

d) Total utility will rise at a falling rate as more units are consumed

Question 5

If marginal utility is zero:

a) Total utility is zero

b) An additional unit of consumption will decrease total utility

c) An additional unit of consumption will increase total utility

d) Total utility is maximized

Question 6

A decrease in income should:

a) Shift demand for an inferior product inwards

b) Shift demand for an inferior product outwards

c) Shift supply for an inferior product outwards

d) Shift supply for an inferior product inwards

Question 7

An increase in the price of a complement for product A would:

a) Shift demand for product A outwards

b) Shift demand for product A inwards

c) Shift supply for product A outwards

d) Shift supply for product A inwards

Question 8

An increase in price, all other things unchanged, leads to:

a) Shift demand outwards

b) Shift demand inwards

c) A contraction of demand

d) An extension of demand

Question 9

If a product is a Veblen good:

a) Demand is inversely related to income

b) Demand is inversely related to price

c) Demand is directly related to price

d) Demand is inversely related to the price of substitutes

Question 10

If a product is an inferior good:

a) Demand is inversely related to income

b) Demand is inversely related to price

c) Demand is directly related to price

d) Demand is directly related to the price of substitutes

Конец формы

Literature list

1. David Begg, Foundations of Economics, McGraw-Hill Higher Education, 2009.

2. Andrew Gillespie, Foundations of Economics, OUP Oxford, 2011.

3. Principles of Economics, Karl E. Case, Ray C. Fair, Sharon Oster, Pearson Higher Education, 2011.

4. Principles of Economics, N. Gregory Mankiw, Cengage Learning, 2012

5. Stanly Fisher, Rudiger Dornbush, David Begg, Economics, 4^th edition, London, 2008

6. Камаев В.Д. и колл. Авторов, Экономическая теория, Учебник, 2010 г

7. Мусабеков С.М. Экономическая теория. Учебное пособие. Алматы. КазУМО и МЯ 2011г

Internet resources

http://www.oup.com/uk/orc/bin/9780199586547/

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